Computershare – high conviction “sell”

Computershare is now down 20% from its highs and we continue to see earnings  pressure for the group.

CPU trades on 17x PE and a 2.8% dividend yield with a backdrop of falling earnings growth. Over the next 1 – 3 years we expect EPS growth to trend towards “flat” numbers at best.

Our valuation forecast is for CPU to fund support at or near $14.50.

 

Computershare Sell-Off

Computershare had their investor day today and the market has reacted negatively to a softer earnings outlook.

We’ve been on the short-side of this trade following the lower high formation and the Algo Engine sell signal earlier this year. The CPU business is exposed to a number of structural headwinds and we expect further weakness in the share price.

 

Computershare – Algo Engine Sell Signal

Computershare is under Algo Engine sell conditions and has been forming a lower high pattern since topping at $20.50, September last year.

We continue to view the market’s assessment of the future earnings growth picture, as miss-guided. The factors that have lead to the recovery in earnings are transitory and the 20X PE and 2.5% yield, makes CPU too rich for our liking.

Our downside price forecast over the next 12 – 18 months is $15.00.

 

Computershare – Algo Engine Sell

Computershare is under Algo Engine sell conditions and we continue to see downside risks to earnings and consensus valuations. Bond yields are well below the input levels used by analysts 6 months back, when forming the forecast valuations.

With the stock trading 20x earnings on a 2.3% yield, we see little reason to own this one.

 

 

Death of the high PE

We’ve been warning about a number of ASX large cap stocks which trade on 25X earnings and 2% yield and, at best, will deliver low single digit earnings growth.

Two examples are the recent sell signal posts we’ve made on Computershare and James Hardie.

We feel that the day of reckoning is approaching and, in many instances, as seen in CPU & JHX, the selling has already started and we’re now seeing a retracement back to the mean, (and likely beyond).

We’ll leave the 150x PE of Amazon, or the 200x PE of Netflix for a future  posting, but suffice to say; reality will soon hit.

Chart – CPU
Chart – JHXASX:JHX

 

 

 

 

 

 

Has The AUD Reached The RBA’s Pain Level?

At the start of the year, the market consensus was for the Aussie Dollar to fall against the major currency pairs during 2017. So far this year, the AUD/USD has climbed 10% and almost touched .8000 last week.

At 1pm today, RBA chief Philip Lowe will be giving a speech in Sydney. Since many exporters look at .8000 as a pain level, it’s reasonable to expect Mr Lowe to comment about the level of the Aussie.

The strengthening AUD/USD has created a headwind for domestic companies with earnings exposed to the softening USD.

Four companies that we follow which have seen their share prices dampened due to a stronger Aussie are: BXB, CPU, ANN and JHX.

Australian Dollar

Computershare – Earnings Result 16th Aug

Computershare reports earnings on the 16th August.

At 20x forward earnings and 2.6% dividend yield, we feel CPU will likely disappoint and deliver earnings below market expectations.

Any bounce in CPU from these levels will provide an opportunity to consider building new short exposure.

Chart – CPU

James Hardie trades at 26x forward earnings with a 2.7% forward yield.

Again, we consider this name expensive and likely to disappoint investors when JHX report earnings on the 8th August.

A rally back towards $21.00 will provide an opportunity to reset short exposure.

Chart – JHXJHX

 

 

Computershare – Overvalued

At 20x forward earnings and 2.5% dividend yield, we feel Computershare is overvalued.

The market is too bullish on the  cost out story and anticipated earnings growth. The August earnings result will likely be a reality check.

Chart – CPU